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Capital Controls and the Determinants of Entrepreneurship

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  • Christopher Andrew Hartwell

    (Kozminski University, Dpt. of International Management, Warsaw)

Abstract

There is consensus on the need for entrepreneurship (a micro phenomenon) to drive the larger macroeconomy. However, little research has been done on how specific macroeconomic policies might in turn impact entrepreneurship. This paper examines how one particular macroeconomic policy, capital account openness, affects the creation of firms in a country. Using a new dataset of 112 countries from 2004–2011 and utilizing system-GMM and Bayesian model averaging (BMA) techniques I find that capital openness is strongly correlated with new firm entry, a result that holds across several specifications and for both developed and emerging markets. We can conclude that governments looking to promote entrepreneurship should avoid capital controls and instead encourage other investment climate reforms.

Suggested Citation

  • Christopher Andrew Hartwell, 2014. "Capital Controls and the Determinants of Entrepreneurship," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(6), pages 434-456, December.
    • Handle: RePEc:fau:fauart:v:64:y:2014:i:6:p:434-456
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    More about this item

    Keywords

    capital controls; firm entry; entrepreneurship; Bayesian model averaging;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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